- Star Wars was a mega-hit, and will be reflected in Disney numbers to be reported on February 9.
- Disney stock has fallen on general market weakness and concerns about ESPN and cable cord-cutting.
- On earnings and ESPN negotiating new rights contracts, the stock will take off.
Times like these are the reason why you always keep some cash in your portfolio.
When the market is tanking, when there is blood in the streets, you wait for the knife to hit the ground and then you pick up some bargains. Walt Disney (NYSE:DIS) stock is currently one such bargain.
Disney stock rose this year on rumors about Star Wars: The Force Awakens, then fell on the news, which is that the picture was a mammoth hit, blowing past Avatar to become the most successful movie of all time.
At the time of writing, Disney stock was sitting at $99.25 (Jan 8 closing price), down from twin peaks of $120 earlier in the year. That’s a Price/Earnings multiple of 20, based on trailing year earnings. The analyst consensus for its next earnings, due on February 9, are for earnings of $1.43 per share, against $1.27 a year ago. Revenue is expected to come in at $14.65 billion.
My guess is Disney will deliver a beat on both these numbers, meaning your near-term deadline for getting into this stock is February 9, when those earnings numbers are scheduled to be announced.
The usual reason given for the stock’s fall, which began in late November, is “cord-cutting” and the subscriber losses at ESPN, the company’s complex of sports networks. Disney also owns some other channels subject to cord-cutting, including its flagship Disney Channel, A&E, and ABC Family. It also owns the ABC Television Network, which was previously disintermediated by cable.
Disney has resisted the urge to own its own infrastructure, like Comcast -A (NASDAQ:CMCSA) and Twenty-First Century Fox (NASDAQ:FOX), focusing instead on downstream monetization through toys and its theme parks. Those who went to see Star Wars were treated, before the show, to a host of trailers for upcoming Disney movies, most involving the popular Marvel franchise, bought for $4 billion in 2009, three years before it bought Lucasfilm for about the same price. (Some of the Lucas price was in stock, which has since doubled in value.) Many forget that the buying binge started in 2004, when Disney bought The Muppets under former CEO Michael Eisner.
Disney, in short, has rights to most of the durable characters your kids love, and has proven fully capable of fully monetizing them, right down to Miss Piggy’s squeak. Licensed characters tend to have a very long shelf life, and that life is extended when new products are built around them, even if these efforts fail in first run, as ABC’s re-boot of The Muppets TV series failed.
With the S&P 500 trading at a Price/Earnings ratio of 21.74, Disney stock at 20 is a bargain, especially given its proven capability of expanding earnings. Once the high-priced sports contracts ESPN bought over the last few years come up for renewal, at more reasonable prices, Disney stock is going to really take off.